US stocks: the “least dirty shirt” on the line

"And we're back," says Kopin Tan in Barron's. America's S&P 500 index, which sets the tone for world markets, has risen to a record high above 2,160. It had gone almost 14 months since its last all-time high, "a dry spell longer than three of Elizabeth Taylor's marriages". The bull market that began in March 2009 is still intact. It is Wall Street's second-longest on record.

So why do stocks have a new spring in their step? The earnings outlook certainly doesn't justify new highs. Second-quarter S&P 500 profits are set to fall on an annual basis, marking their fifth quarterly fall in a row the worst performance since 2009.

The two main recent headwinds, the strong dollar and the oil-price slump, have faded, but "margins are being whittled away" now that wages are rising from a low base, as Lindsay Whipp and Sam Fleming point out in the FT. While analysts expect year-on-year earnings growth to return in the second half of 2016, the backdrop would hardly seem to justify a 2016 price/earnings ratio of 18.5, or a cyclically adjusted price/earnings ratio of 26 miles above the long-term average of 16.

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Then again, says Economist.com's Buttonwood blog, while stocks are overvalued, they look far more enticing than cash and bonds, which yield practically nothing, or even less than nothing. And while the US and world economies aren't exactly booming, they are "muddling along". With risk appetite returning after the Brexit jitters, stocks "look like the least dirty shirt' on the washing line".